Physical Capital Types: Fixed Capital and Working Capital

Physical capital refers to the tangible assets or resources used in the production of goods and services. It can be of two types: fixed capital and working capital. Let's understand these two types in detail.

Fixed Capital:
Fixed capital refers to the long-term assets that are used in the production of goods and services. These assets are not consumed in the production process, but they contribute to the production process over a long period of time. Examples of fixed capital include land, buildings, machinery, equipment, and tools. These assets are essential for the production process and are not easily convertible into cash.

Working Capital:
Working capital refers to the short-term assets that are used in the production process and are consumed in the process. These assets are used to finance the day-to-day operations of the business. Examples of working capital include raw materials, inventory, and cash. Working capital is essential for the smooth functioning of the production process.

Conclusion:
Physical capital is an essential aspect of the production process. It helps in increasing the efficiency of the production process and contributes to the growth of the economy. Fixed capital and working capital are the two types of physical capital that are used in the production process. While fixed capital is a long-term asset that contributes to the production process over a long period of time, working capital is a short-term asset that is used to finance the day-to-day operations of the business.